The Market (Alkaline Price Action Lesson)

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CPI is in 30 minutes so I need to work effeciently here.

Yesterday we had a hotter than expected PPI. Not by much, but I think there is a lot of confusion in markets. A lot of traders I bet lost money expecting PPI to be bearish only for the market to reverse with theta destroying 0DTE's unless you grabbed calls at the bottom. That may be the case, but let me ask you a question.

You should be able to answer this question in a few different ways. I know some of you are beginner traders who have just started their journey to financial independance, so this is an incredibly important lesson I need to bring up. It's called Price Action Sentiment, and its helpful for noticing trends of a previous day in order to help traders to prepare for the next day. A great, sort of medium level market analysis and this chart is perfect to talk about.

Let's break it down.

This chart is from October 6th until Today. Ignore the trendline, that is not important, but it is helpful to see that we are in an uptrend.

Maybe the 5 minute chart helps see it better

We were trending down for numerous days at a time. It proven that the market does not trend in a single direction for too long. It eventially changes direction. Which over the days this week we saw that reversal.

The market was trending down, then reversed strong to the upside

We know that the market has been bullish despite bearish data

We also know that the market could reverse for any reason

Let's go back to yesterday's chart

We know PPI was slightly bearish, but the market did not make a big move. I know you see the downside, but if you take a closer look at the price action we can see there was a lot of confusion in markets and traders / investors alike were not convinced. This is because of a few different reasons.

1). CPI data the following day

2). The strong uptrend

3). Bullish sentiment in markets

PPI is a strong piece of data, but CPI is a lot stronger. Taking a look at the chart, we can see that bears had a tough time bringing the market down. We only saw one good move on the day to the downside and chop before and after each move. This tells me that the overall sentiment is bullish, and is supported by the price action to the upside. There was a huge move that helps traders look back and realize we really did not react too much to PPI at all. The bulls had no problem at all bringing up the market with the reversal on the day.

We know the strength of the bulls in the market

We know that the sentiment is overall bullish

We know that with bad data, there is still confusion in markets. Confusion leads to indecisiveness in markets which means chop.

Observing the price action of previous days help gage where the market is trying to go

Although it is important to notice days like yesterday to notice overall market sentiment, traders should still express caution. Just like the down trend, the uptrend can halt at any moment and reverse. The point of this sort of analysis is to gage trends and is not 100% an indicator of where the market is headed next. Remember, the market does whatever it wants. Price Action Sentiment should be used with gaging trends once it has formed. I use it typically after 2 days of consistant direction. If the market has been trending for 4 or 5+ days we might see some chop leading up to the following days. But why?

I am not sure if many traders know what this is, but if you have seen the movie The Big Short, you will know what I am talking about. This is a basketball saying which means when a shooter hits 4 shots in a row, how could they miss the 5th! Like I mentioned, the market could reverse for any number of reasons. The longer the trend lasts, the lower the probability of it continuing in that direction decreases. Which makes a lot of people money. Some investors think that if the market's going down for 6 days, how could it go up? If the market is going up, it couldn't possibly go down right? It's important to be careful here and watching price action closely could help you gage a possible shift in sentiment in markets.

So in all, this analysis is helpful with gaging trends and noticing overall market sentiment. Bullish or bearish. However, traders also use it when looking for shifts in sentiment signaling either a choppy day or a reversal on the week. I recommend looking into it because again, those that got puts leading up for to PPI got crushed and this is one of those reasons.

I apologize if this was confusing, but I personally do not use this analysis as a strategie. I use it as a "how strong or weak was the market yesterday and how can it set me up for tomorrow"

This all leads me into todays charts.

SPY 1 hour

Well, the cleanest cup and handle wasn't so clean afterall but it still played out! we are right under the rip zone, I think if CPI is bullish we might see our bearish to bullish setup playout once again.

4 Hour

Again, the market is pointing in a single direction, bullish. We know that from the analysis we just conducted. CPI is a much larger indicator and if it is bullish we might go towards that imbalance.

The data release is in 4 minutes. I hope everyone makes some money, and again I apologize if this post was too fast. I tried getting it out before the release. Let's all make some cash